Profits up but law firms warned on drawings

Law firms in England and Wales continue to enjoy inflation-busting profits – but for a growing number excess drawings could jeopardise financial stability.

These are the headline findings of this year’s Law Society Law Management Section (LMS) Financial Benchmarking Survey, a respected annual healthcheck of the sector.

Median profit per equity partner increased for the fifth consecutive year by 3% to £143,000. Median fee income was up over 5%, and ranged from £620,000 per equity partner at the median to over £1m among the most profitable firms.

Fee income rose across most work types and regions, but so did the breakeven point for a fee-earner. This climbed from £102,000 to £109,000, mainly due to increases in costs and non-salary overheads.

Firms demonstrated reasonably good control of lockup, which amounted to a median of 145 days.

One concern is that partners at a quarter of participating firms took out more than they made in profits – up from a fifth. For law firms to remain financially sound, the report stresses that a considerable sum should be retained to fund working capital.

LMS chair Robert Banner warned: ‘The firms that take part in the survey usually have a particular interest in high performance and management. If a quarter of these firms are over-drawing, then the proportion for the rest of the profession is likely to be higher.’

Jon Cartwright of Hazelwoods, which conducts the survey, said: ‘Most mainstream legal practices are in good shape financially, although clearly some areas such as personal injury and criminal continue to be tricky.’

Some 200 firms responded to this year’s survey, ranging from one-partner to 25-partner-plus firms, with a combined income of nearly £1bn. The full survey, sponsored by Lloyds Bank Commercial Banking, will be published in March.